Short Term Business Vision Dominates

Many of the classic scientific research labs, such as Bell Labs and RCA Labs (now Sarnoff Corp.), were started and funded by companies with virtual monopolies and very strong, predictable cash flows. They were able to embrace the uncertainty and serendipity of pure research in the context of their business. But such companies don’t exist today. With the increasing focus on shareholder value that began in the 1990s as global competition heated up, Fortune 500 companies could no longer justify open-ended research that might not directly impact their bottom line. Today, corporate research is almost exclusively engineering R&D, tending more toward applied research with a 3- to 5-year time horizon (or shorter). IBM, Microsoft MSFT, and Hewlett-Packard HPQ, for example, collectively spend $17 billion a year on R&D but only 3% to 5% of that is for basic science.

The End of Labs

It’s not just a shame, it’s actually a very bad strategy in play right now and for the future. I once remarked at company retreat I was at that often a company or industry matures so much that it’s only strategy is to invent just for the sake of inventing, with the idea that completely new revenue streams might evolve. I was quickly slapped down by a major executive, “We need to work on things that can be commercialized now.” I knew then the fate of that company would be mostly an arbitrage of wall street expectations. And that’s exactly what it, and 1000s of other companies have become. This is also why this particular recession is so painful – most companies have no institutional ability to innovate. Two decades of chaising the near term exit, the 30% stock market rocket shot leave industry stagnant.

Know one knows what the next big idea is. And no one will figure that out without basic research. And by big ideas, I mean things like the printing press, the Internet, germ theory, genetics, the Wheel. You know – THE BIG STUFF that powers generations of commerce.